Most credit cards in use today have information coded on a magnetic stripe as well as in embossed characters. The information so coded is not altered for the life of the card. Such cards are referred to as "magnetic stripe" cards.
In most credit systems that use magnetic stripe cards and most particularly in the burgeoning field of electronic funds transfer systems (hereafter called EFTS), great concern exists over the lack of security associated with the magnetic stripe credit card that is used as one of the key inputs of information for identification and credi purposes. Cards can be counterfeited and the magnetic stripe information they contain can be duplicated with ease. Lack of security has hindered the acceptance of such magnetic stripe cards in EFTS.
Several companies have developed special credit cards with improved security. Transaction Technology (a subsidiary of First National City Bank) has developed its "Citicard" which contains optical information embedded in the card structure; the card is read by means of infrared sources and photodetector arrays. Burroughs has developed a magnetic stripe card that contains permanent security information in an auxiliary magnetic stripe. Zeta (a small California company) has developed a card with embedded magnetic information. Rusco Industries has developed a security access card which also contains hidden magnetic information. Several years ago Addressograph-Multigraph Corporation announced a new system that contains secret optical (reflector) bits that are read with infrared light. All of these cards doubtless improve security; they strain the skill of the counterfeiter and require that he expend considerable money for the equipment necessary to the achievement of his scheme. Recognizing that any card can be counterfeited, the companies cited above and the users of their systems hope that the high cost of counterfeiting their cards will act as a deterrent.
There are four salient disadvantages to these approaches: first, the security credit cards are more costly to produce and distribute; second, the terminal readers for these cards are significantly more expensive than magnetic stripe readers; third, these cards inherently contain less information than the standard three channel magnetic stripe. Fourth and most important, large costs are required to replace existing cards with the new security cards. For companies such as American Express and BankAmericard, with millions of magnetic stripe cards issued, the replacement costs are enormous. Clearly, the need to replace existing cards is a barrier to wide use of these new security cards.
A system in accordance with the principles of this invention is applicable to any magnetic stripe card terminal system. In general such a system consists of a group of terminals, a central computer, several intermediate minicomputer controllers and dedicated phone lines. These systems work as follows: a customer presents his credit card to the terminal operator for the purpose of effecting some financial transaction--check cashing, charge, fund transfer, bill payment, etc.; certain information is keyed into the terminal and the credit card is read by the terminal; this information is gathered from the terminal by the controller and transmitted to the central computer where (among other operations) the status of the customer's credit is obtained from the computer memory and a code is transmitted back to the terminal instructing the operator as to whether or not he should allow the requested transaction to take place. If the credit card is valid--i.e., not on a "derog" list of stolen cards, over limit, or overdue accounts--the transaction proceeds, and the results are recorded in the central memory. Present systems make only a superficial attempt (e.g., by means of parity checks) to determine whether or not a magnetic stripe has been altered; no attempt is made to catch a counterfeit card. An altered card (or a counterfeit card) that contains a proper parity code would fool many systems.